Phone contract comparisons 'amounted to mis-selling' student loans, MPs say
12 minutes ago
Hayley ClarkeEducation reporter
Comparing student loan repayments to phone contracts or cinema tickets "amounted to mis-selling" by government, a group of MPs has said.
In a new report, the Treasury Committee also said students were not told clearly enough loan terms could change retrospectively, and called for a U-turn on the decision to freeze the income threshold at which some graduates start repaying their loans.
Last year, Chancellor Rachel Reeves said the repayment threshold for students with Plan 2 loans would be frozen at £29,385 between 2027 and 2030, instead of rising with inflation.
Both the government and Student Loans Company said the committee had made "an important contribution" to the student finance debate.
A spokesperson for the Student Loans Company said they "recognise the importance of ensuring that students and borrowers across all repayment plans have access to clear, accurate and timely information about student finance".
A government spokesperson said ministers were "already taking decisive action" and would "continue to look for ways to make the system fairer for students, graduates and taxpayers in a financially sustainable way".
Plan 2 loans were taken out by students in England between September 2012 and July 2023, and are still issued in Wales. Graduates automatically pay back what they earn above the repayment threshold at a rate of 9%.
Freezing that threshold means graduates start repaying their loans sooner, or pay more as their salaries increase with inflation while the threshold remains the same.
The committee's report referenced a BBC investigation which found the government compared student loan repayments to £30-a-month phone contracts in promotional presentations to teenagers a decade ago.
As this was "inaccurate for higher earners", that "amounted to mis-selling", the report said.
The committee noted that while the government's student loan policies were exempt from consumer protection laws, it expected the government "to comply with not only the law, but basic fairness and common decency".
Student loan plans 1-5
A very quick guide:
Plan 1
- Applies to: Students who started before Sept 2012 (England/Wales), or any time (NI)
- Annual Repayment Threshold (2026/27): £26,065
- Repayment Rate: 9% of earnings above threshold
- Interest Rate: Lower of RPI or Bank of England base rate + 1%
- Write-off Period: 25 years after eligibility or age 65
Plan 2
- Applies to: Students who started between September 2012 and July 2023 in England and September 2012 to now in Wales
- Annual Repayment Threshold (2026/27): £27,295
- Repayment Rate: 9% of earnings above threshold
- Interest Rate: RPI + up to 3% (varies by income)
- Write-off Period: 30 years from April after course completion
Plan 3 (Postgrad loan)
- Applies to: If you started a postgraduate master’s course on or after 1 August 2016 or a Doctoral course on or after 1 August 2018
- Annual Repayment Threshold (2026/27): £21,000
- Repayment Rate: 6% of earnings above threshold
- Interest Rate: RPI + 3%
- Write-off Period: 30 years from when you become liable
Plan 4
- Applies to: Scottish students (any time since 1998)*
- Annual Repayment Threshold (2026/27): £32,745
- Repayment Rate: 9% of earnings above threshold
- Interest Rate: Lower of RPI or Bank of England base rate + 1%
- Write-off Period: 30 years after course completion
- *As Scottish students generally do not pay tuition fees Plan 4 loans apply to Scottish students studying outside of Scotland or maintenance loans
Plan 5
- Applies to: Students who started in August 2023 or later (England undergraduates)
- Annual Repayment Threshold (2026/27): £25,000
- Repayment Rate: 9% of earnings above threshold
- Interest Rate: RPI only
- Write-off Period: 40 years from April after course completion
Oliver Gardner, founder of campaign group Rethink Repayment, said the inquiry had concluded "what we have known for years".
"The student loan system is unfair, unsustainable and in urgent need of reform," he said.
Lewis Wilson, from the National Union of Students, said the next Labour administration could bring in "immediate fixes" by raising the repayment threshold and lowering the repayment rate, but said the system needed "fundamental reform" in the coming years.
Laura-May Nardella said she remembered having her future loan repayments compared to a mobile phone contract when she was a teenager.
Now 31, she said her repayments actually total hundreds of pounds a month.
"If I look at my 2025 repayments, I've paid over £3,000," she said.
"That isn't a phone bill. That's three brand new phones."
Laura-May Nardella said she and her husband pay almost the same on their student loan repayments as their mortgage each month
Despite that, the Cambridge graduate, who now works in HR, said her overall debt had actually gone up rather than down.
That's because, as a higher earner, her loan debt has accrued interest at a rate of 6.2%.
"That is the most difficult thing when it comes to the Plan 2 loan - that it feels like you're not chipping away," she said.
"It's quite psychologically difficult. And it's not how it was sold to us at the time."
She said she felt "very fortunate" to have been able to buy a house with her husband, but that their student loan debt "hangs over our heads".
"Imagine where that money could have gone. It could have gone into retirement planning, it could have gone into funding for future plans, things like children," she said.
"It's an unfair loan and an unfair burden to put on young people."
'Deeply misleading' school talks compared student loans to £30 phone contracts
Student loans inquiry finds many did not understand terms
How do student tuition and maintenance loans work?
MPs launched their inquiry into student loans in England amid "widespread dissatisfaction" over repayment terms.
Thousands of people responded to the inquiry's call for evidence to say they did not fully understand the terms and conditions on their student loans before they took them out.
At the time, Treasury Committee chairwoman Dame Meg Hillier said "the massive scale and strength of frustration and upset [was] powerful".
In 2023, Plan 2 loans were replaced for undergraduates in England with Plan 5 loans.
Graduates with Plan 5 loans start to repay them at a lower salary threshold than Plan 2 - £25,000 - and the loans are written off later - after 40 years, rather than 30.
The Treasury Committee's report said this had shifted the burden of paying for higher education from the highest earners towards all loan holders.
Architecture student Emma Cook, 20, told BBC Your Voice that the thought of paying back 9% of her salary above the threshold for the next 40 years was "depressing".
But she said she felt "lucky" to have avoided Plan 2 interest rates, which vary depending on how much you earn.
Current student Emma dreams of becoming an architect, but is concerned about the job market and the interest accruing on her student loan
She is just about to complete her undergraduate degree at the University of Greenwich and has £50,000 worth of student debt.
She has been trying to secure a work placement, with the aim of continuing her studies and ultimately realising her dream of becoming an architect.
But having sent off dozens of applications, she said she felt under pressure to find paid employment quickly to try and avoid her student loan taking on too much interest.
"It's quite rough," she said. "If I don't get a job, I can't pay back the student loan. And it's just going to sit there accumulating for a long amount of time.
"So the sooner I get a job, the better."
She said she would like to see more apprenticeship routes for young people, and more employment opportunities for graduates.
"Sure, everyone wants a graduate, right?" she said.
"But no one wants to hire one."
